8 ways to increase project profits by using purchase orders Cost Control Project controlling Purchase order Posted on October 16, 2024 Share: Have you ever faced losses due to hidden costs or unforeseen delays? Cost overruns and budget breaches are, unfortunately, common problems in the construction industry. In fact, 9 out of 10 projects exceed their budget, according to a review from the International Journal of Innovation, Management and Technology. But when margins are tight, even small improvements can have a significant impact on the outcome. To better understand how purchase orders can help you increase your project profits, we’ve divided them into two categories: revenues vs. costs.How to secure project revenues:1. Clear agreement with the client By using purchase orders, you ensure clear agreements with the client. When the client uses a purchase order, all terms are clarified, and it’s clear what is included in the project they are ordering and what will be paid for. This gives you better control over the project’s revenues.2. Effective deviation handling Manage deviations or changes from the original purchase order with a change order or additional order. This keeps the new delivery’s conditions clear and agreed upon with the client.3. Progress without delays Avoid liquidated damages that could affect your income by having good routines to ensure progress. This is especially important if you have subcontractors who need to deliver on time. Your purchase order with the supplier can reflect the client’s liquidated damages requirements, which then acts as security for lost revenues.4. Learn from previous projects Looking for an easier way to avoid the same mistakes in every project? By using purchase orders systematically, you gain insight into what actually happens, not just what was planned. You get a clear overview of deliveries and deviations, which helps you adjust estimates and make smarter decisions in future projects. Each purchase order builds a knowledge base that allows you to avoid past pitfalls and strengthen your project management.How to influence the cost management:1. Improved negotiation position Struggling to get the best deals with suppliers? When all details are documented in the purchase orders, it gives you a better negotiating position. The history from previous purchase orders, preferably in a system, gives you even greater negotiating power. Easy access to information on both volumes and historical prices further improves your negotiating position. This enables you to achieve better prices, more flexible terms, and generally better deals. With a clear overview, you can also compare offers and identify the most valuable ones.2. Better control and overview Purchase orders give you better control over the project’s commitments and minimize the risk of wrong purchases and double orders. With more eyes reviewing orders before they are sent, you gain a solid overview to evaluate and find savings. Clear documentation gives you full control over orders and deliveries, helping you avoid negative surprises.3. Prevention of hidden costs Document detailed specifications in purchase orders to clearly understand what you’re paying for and what has been agreed upon. This makes it easier to detect and correct any deviations early, so you avoid hidden costs and ensure the project stays within budget. Purchase orders are also a powerful tool for keeping track of all cost commitments in the project, helping you avoid unexpected invoices.4. Efficient project management Tired of time-consuming administration and minor errors? Purchase orders make project management more efficient by gathering all information in one place. This saves time, reduces the risk of double orders, and ensures that everyone has the overview they need. A streamlined process helps you keep the project on track and ensures a better flow.Checklist: 10 criteria for selecting the right purchase order systemAlso, use purchase orders to cover key risk elements on both sides:Price adjustments Clearly agree on all price adjustments in the purchase order with both the client and the supplier. This gives you the security that all parties agree on the costs and prevents unexpected surprises.Market changes Use purchase orders to tackle major market changes. For example, agreements can include handling large currency fluctuations or delivery problems with subcontractors. This way, you and your partners are protected against factors beyond your control.SummaryNavigating the tight margins of the construction industry can be challenging, especially with the risk of hidden costs and budget overruns. As we’ve seen, purchase orders can give you the oversight and control you need to improve both the revenue and cost management of your projects.Want to take the next step towards more efficient and profitable projects? Try the checklist to choose the right purchase order system and see how you can optimize your procurement processes. Share:
Cost ControlBest Practices for Project Budgeting and Cost Forecasting Accurate budgeting and cost forecasting are essential for keeping projects on track and within financial limits. However, as highlighted...February 12, 2025
Cost Control8 great benefits of using a purchase order system Many companies use Excel or Word to create purchase orders. We know that purchase orders are a great way...January 28, 2025
Project controllingWhat is Estimate At Completion in projects Estimate At Completion (abbreviated EAC) tells you what your project will look like financially at the end of your...December 17, 2024